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Why should the shareholder of a firm care about maximizing a value of a firm?
the value of a firm determines their wealth.if the value of a firm,which is the market price per share of the total number of shares issued,is increased,invariably the shareholders' return is increased..by John I Agwu
What is maximizing a firm value?
Value can be broadly divided as perceived and the realized value. The perceived value is the one that determines the effect of the realized ones. The maximization of the value of firm relates to the concept that how the business of the firm is being perceived as in the business world. Creating a value through ones core competence and making your customer the king of your business helps in building the value of the firm. The firms value acts as the deciding ones for making the clients follow your business. In recent business scenario the profit motif has shifted to the value motif.
Difference between present value and net present value?
Present value is the result of discounting future amounts to the present. For example, a cash amount of $10,000 received at the end of 5 years will have a present value of $6,210 if the future amount is discounted at 10% compounded annually.Net present value is the present value of the cash inflows minus the present value of the cash outflows. For example, let's assume that an investment of $5,000 today will result in one cash receipt of $10,000 at the end of 5 years. If the investor requires a 10% annual return compounded annually, the net present value of the investment is $1,210. This is the result of the present value of the cash inflow $6,210 (from above) minus the present value of the $5,000 cash outflow. (Since the $5,000 cash outflow occurred at the present time, its present value is $5,000.)
What approaches can be taken in valuing a firm's stock when there is no cash dividen payment?
In valuing a firm with no cash dividend, one approach is to assume that at some point in the future a cash dividend will be paid. You can then take the present value of future cash dividends. A second approach is to take the present value of future earnings as well as a future anticipated stock price. The discount rate applied to future earnings is generally higher than the discount rate applied to future dividends.
What is the optimal capital structure?
optimal capital stucture is that where the firm value is high and the wacc of the firm is low and that capital structure a firm can follow constantly and that capital stucture not become a burdon on firm.
What is 'value of a firm'?
The 'value of a firm' is connected with profit maximization. It is the present value of the firm's current profit and the future profit. It determines the value accurately.
What is a firm's value?
The 'value of a firm' is connected with profit maximization. It is the present value of the firm's current profit and the future profit. It determines the value accurately.
How do free cash flows and the weighted average cost of capital interact to determine a firms value?
Free cash flows represent the cash generated by a firm that is available to be distributed to investors. The weighted average cost of capital (WACC) is the average rate of return required by investors in order to finance the firm's operations. By discounting the free cash flows at the WACC, we can determine the present value of those cash flows, which ultimately determines the firm's value. If the present value of the free cash flows exceeds the firm's invested capital, then the firm is considered to have positive value.
Is the book value of a firm generally synonymous with its strategic value?
No. The "book value" of a firm is based on the outstanding shares, liquidable assets, and cash-on-hand - all recorded financial data. The "strategic value" of a firm may actually be much more than what the firm is work "on the books," as a company acquiring the firm may want to pay more for that strategic value.
Why should the shareholder of a firm care about maximizing a value of a firm?
the value of a firm determines their wealth.if the value of a firm,which is the market price per share of the total number of shares issued,is increased,invariably the shareholders' return is increased..by John I Agwu
Why equity is a call option on a firm's assets?
There are two ways to view a firm in terms of options; both of which rely on the Call-Put parity relationship: C = S - PV(x) + P The first is the right hand side of the equation. This is saying that equity holders own the firm, owe PV(x) to the bondholders and have a put on the firm. Therefore, if the value of the firm exceeds the value of debt then the equity holders retain the firm and do not use the put. If the value of debt is greater than the value of the firm then the put is exercised to sell the firm in order to pay off the debt. The second way, which is identical to the first, is simply to say that the equity is a call option on the firm's assets. The bondholder's own the firm, have put PV(x) into the firm and receive the benefits of the firm. However, once the value of the firm exceeds the exercise price then the equity holders (call holders) will exercise their right to buy the firm, as it will now have positive value.
What is an embedded value?
A common valuation measure used outside North America, particularly in the insurance industry. It is calculated by adding the adjusted net asset value and the present value of future profits of a firm. The present value of future profits considers the potential profits that shareholders will receive in the future, while adjusted net asset value considers the funds belonging to shareholders that have been accumulated in the past.
What is a capital investment's net present value?
Widely used approach for evaluating an investment project. Under the net present value method, the present value (PV) of all cash inflows from the project is compared against the initial investment (I). The net-present-valuewhich is the difference between the present value and the initial investment (i.e., NPV = PV - I ), determines whether the project is an acceptable investment. To compute the present value of cash inflows, a rate called the cost-of-capitalis used for discounting. Under the method, if the net present value is positive (NPV > 0 or PV > I ), the project should be accepted.
What is Relationship between capital structure and value of the firm?
They sometimes go together. The capital structure will be how much money is coming in. The value of the firm will include this plus how much people think of the firm.
Is the present value factor the exponent of the future value factor?
The present value factor is the exponent of the future value factor. this is the relationship between Present Value and Future Value.
What is maximizing a firm value?
Value can be broadly divided as perceived and the realized value. The perceived value is the one that determines the effect of the realized ones. The maximization of the value of firm relates to the concept that how the business of the firm is being perceived as in the business world. Creating a value through ones core competence and making your customer the king of your business helps in building the value of the firm. The firms value acts as the deciding ones for making the clients follow your business. In recent business scenario the profit motif has shifted to the value motif.
What is an embedded?
A common valuation measure used outside North America, particularly in the insurance industry. It is calculated by adding the adjusted net asset value and the present value of future profits of a firm. The present value of future profits considers the potential profits that shareholders will receive in the future, while adjusted net asset value considers the funds belonging to shareholders that have been accumulated in the past.
